The rating agency Moody’s promotes Italy after 23 years, with the upgrade from Baa3 to Baa2.
And after 7 years spent on the last rung of investment grade: Italy is thus emerging from the junk antechamber position in which it had been confined since 2018.
Why Moody’s promoted Italy
Moody’s was the last major rating agency to move, after the upgrades already assigned in 2025 by S&P, Fitch, Dbrs, Kroll and Scope. The Meloni Government rejoices, leading the third largest economy in the Eurozone, although heavily indebted and historically perceived as vulnerable to political and fiscal crises. But the change of pace was also possible thanks to the long wave of the Draghi Government’s policies.
Four key elements underlie Moody’s choice:
Political stability and policy continuity
Moody’s underlines that, in recent years, Italian economic policy has shown greater coherence and predictability than in the past. This has strengthened the government’s ability to stabilize public finances and manage the budget cycle even in a context of weak growth.
Reduction of the deficit and return of the primary surplus
The deficit, although still high in historical terms, has fallen below 3% and the Government aims to consolidate this dynamic as early as 2025. The return of the primary surplus, which has risen to 0.9% of GDP and is expected to increase in the coming years, represents one of the pillars of the upgrade: it is the indispensable condition for stabilizing a debt that is close to 140% of GDP.
Implementation of the Pnrr beyond expectations
Moody’s recognizes that Italy is at the top of the European ranking for milestones achieved and funds requested: a factor that not only supports potential growth, but strengthens the perception of administrative capacity.
Solidity of banks, families and businesses
The more stable banking sector, relatively strong private balance sheets and a balanced external position attenuate vulnerability to shocks and reduce overall systemic risk.
And the news regarding Moody’s arrives shortly after the confirmation of the positive trend of the BTP-Bund spread.
What is concretely changing for Italy now
There are several effects of this latest risk cut in relation to the rating, in addition to the mere favorable impact on international perception.
Italy must refinance hundreds of billions of securities every year. Even a reduction of a few tenths of a point in yields translates into billions in savings over the course of a few years. Markets and investors, anticipating the upgrade, had already compressed the spread: the 10-year BTPs managed to yield almost as much as the French OATs. With the upgrade, this dynamic is consolidated. The direct effect translates into: less interest spending, greater stability of public finances, better conditions for each future issue.
And not only that: many global funds (especially pension funds, index funds and regulated investors) have stringent limits that prevent the purchase of securities too close to the “junk” threshold. Italy, with Baa3, was on the limit. Moving to Baa2 expands the investor base and strengthens the structural demand for BTPs.
Negotiating power with Brussels increases: a country with a higher rating, deficit under control and reduced spreads enters the European tables with a greater perceived weight. Italy aims to exit the excessive deficit procedure in 2026: the upgrade gives strength to this strategy.
Moody’s conditions
But Moody’s doesn’t just reward. The debt will only fall if growth holds and Italy has modest potential growth and a strong demographic aging, two elements that work against it. And many of the indicators that have improved in recent years have temporarily risen because they are supported by European funds. We will see what will happen with the end of the Pnrr.
Then there are structural factors that remain unresolved: low productivity, administrative slowness and medium-term political risk.
